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Demographics and Monetary Policy Shocks
Author(s) -
BERG KIMBERLY A.,
CURTIS CHADWICK C.,
LUGAUER STEVEN,
MARK NELSON C.
Publication year - 2021
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12825
Subject(s) - demographics , economics , consumption (sociology) , monetary policy , shock (circulatory) , monetary economics , empirical evidence , demographic economics , econometrics , demography , medicine , social science , philosophy , epistemology , sociology
We show that consumption expenditures for older households are more responsive to monetary policy shocks than for young‐ or middle‐aged households. A one‐standard‐deviation expansionary monetary policy shock induces a statistically significant and quantitatively large (1.7%) increase in aggregate consumption for old households over the ensuing 3 years. The responses for young‐ and middle‐aged households are smaller and not statistically significant. We also present evidence, suggesting that life‐cycle wealth effects play a role in driving the responses. We then build the wealth mechanism into a partial equilibrium life‐cycle model, which can qualitatively match the empirical patterns.